California Mediation and Arbitration tag:typepad.com,2003:weblog-1011579638135252592018-08-04T14:15:19-07:00TypePadArbitration: Disclosures, Section 1286.2 (Vacatur): 2/7 DCA Orders Vacatur Of Adverse Award Against Plaintiff/Claimant Because Arbitrator Had Actual Awareness Of And Failed To Disclose Other Pending Arbitrations Involving Defendant/Respondenttag:typepad.com,2003:post-6a016301acaf19970d022ad3a61b04200b2018-08-04T14:15:19-07:002018-08-04T14:15:19-07:00Plaintiff Waived Vacatur Right As To Ethics Standard 12(b), But Did Not Waive Rights To Vacate Based On Arbitrator’s Failure To Make Required Disclosures Under Ethics Standard 7(d). Here is the ending quotation before the “Disposition” paragraph in Honeycutt v. JPMorgan Chase Bank, N.A., Case No. B281982 (2d Dist., Div....calmediation

Plaintiff Waived Vacatur Right As To Ethics Standard 12(b), But Did Not Waive Rights To Vacate Based On Arbitrator’s Failure To Make Required Disclosures Under Ethics Standard 7(d).

Here is the ending quotation before the “Disposition” paragraph in Honeycutt v. JPMorgan Chase Bank, N.A., Case No. B281982 (2d Dist., Div. 7 Aug. 2, 2018) (certified for publication; Segal, J., author; Perluss, P.J., concurring; and Feuer, J., concurring): “’That all may drink with confidence from their waters, the rivers of justice,’ whether they flow through our public or private systems of dispute resolution, ‘must not only be clean and pure, they must appear so as to all reasonable men and women.’ (U.S. v. State of Ala. (11th Cir. 1987) 828 F.2d 1532, 1552.)” (Slip Op., p. 29.)

Honeycutt concerned an employment arbitration by plaintiff/claimant against her former employer which was a defendant/respondent after employer successfully moved to compel arbitration in the filed lawsuit. In a California arbitration, an arbitrator must make certain statutorily-mandated and ethically-mandated disclosures to the parties, including Ethics Standard 7 [whether the arbitrator is serving as a neutral arbitrator in another prior or pending case involving a party to the current or a lawyer for a party] and Ethics Standard 12 [whether the arbitrator will entertain offers of employment or new professional relationships in any capacity other than as a lawyer, expert witness, or consultant from a party or a lawyer for a party, including offers to serve as a dispute resolution neutral in another case; and, if so, disclose the offer and acceptance in each case within 5 days of same].

The facts were that the arbitrator filled out the AAA disclosures, but there was a missing page where the arbitrator checked he would entertain other offers even though one of the other pages actually sent to the parties did have a handwritten explanation to the missing question that he would entertain offers to serve as a dispute resolution neutral in other cases and would evaluate any potential conflict at that time prior to accepting each offer. However, the arbitrator failed to timely disclose that during the pendency of the Honeycutt arbitration, he had been appointed to serve as an arbitrator in eight other employment cases involving counsel for Chase and two others (one being an employment case) involving Chase—with the parties only receiving four of the eight letters concerning employment cases involving counsel for Chase before the arbitration was completed. Importantly, an arbitrator has a continuing obligation to make required disclosures all along the way. After Honeycutt lost the arbitration, the AAA administrator sent the missing page and all 10 letters about the other cases involving the Honeycutt arbitrator. Honeycutt’s counsel sent AAA a disqualification demand based on the belated disclosures. AAA advised Honeycutt that the arbitrator was not disqualified, with a zero award to Honeycutt and each side ordered to bear administrative fees and arbitrator compensation/expenses “as incurred.” Honeycutt moved to vacate the award (given that arbitrator nondisclosure is a mandatory basis for vacatur under CCP § 1286.2(a)(6)(A)), but the trial judge confirmed it instead, finding sufficient disclosures and no prejudice.

The 2/7 DCA panel reversed and ordered that the award be vacated based on the arbitrator’s failure to make disclosures under Standard 7(d) [other cases involving Chase’s counsel or Chase].

With respect to the failure to make the Standard 12 disclosure, the appellate court found Honeycutt waived her right to vacate on this basis; after all, she failed to object although knowing about the missing page and knowing about the handwritten disclosure such that it was unfair for her to delay raising the issue until after she lost the arbitration.

Different matter, altogether, with respect to the Standard 7(b) nondisclosures. Even though a vacatur requires that the arbitrator has actual awareness of a ground for disqualification, the panel found he had to in light of the fact that he was a participant in the other cases. The appellate court questioned whether an arbitrator, unlike an attorney, can blame a case manager, assistant, or secretary for an arbitrator’s failure to comply with the Ethical Standards, given that the arbitrator has actual awareness of his own intent to entertain offers of employment and then to accept them—which triggered disclosure obligations. Honeycutt did not waive this right to vacate, because it was a right she did not know she had, with her counsel moving to disqualify the arbitrator well within the 15 days required to object after receiving the AAA case manager’s letter finally disclosing everything. So, the rivers of justice in this one swept the arbitration award down the river and out to sea so that an arbitration can take place before an arbitrator making all required disclosures. Honeycutt also was awarded her costs on appeal.

Arbitration: Sanctions: N.D. Cal. District Judge Has Decided To Issue Sanctions Against Fitbit And Its Attorneys For Failure To Pursue Arbitration After Compelling It In Consumer Actiontag:typepad.com,2003:post-6a016301acaf19970d022ad3a4094a200b2018-07-26T17:52:53-07:002018-07-26T17:52:53-07:00Moral Here Is To Pursue Arbitration If You Elect To Do So. Mike Hensley, my co-contributor on the calattorneysfees.com website, has done a recent post about N.D. Cal. U.S. District James Donato’s July 24, 2018 order in which he will be imposing yet-to-be-sought sanctions against Fitbit and its defense counsel...calmediation

Moral Here Is To Pursue Arbitration If You Elect To Do So.

Mike Hensley, my co-contributor on the calattorneysfees.com website, has done a recent post about N.D. Cal. U.S. District James Donato’s July 24, 2018 order in which he will be imposing yet-to-be-sought sanctions against Fitbit and its defense counsel in a consumer action. District Judge Donato decided that the defense conduct in compelling arbitration and then announcing a decision not to pursue it justified “inherent by the court” sanctions to control bad-faith litigation conduct. Mike’s full post tells it all, including the district court’s colorful passage indicating why many people, including judges, are skeptical about arbitration agreements.

However, Ninth Circuit Panel Did Indicate In A Footnote That It Might Have Been Wrong To Say Certain ERISA Claims Inarbitrable As A Matter Of Law.

In Munro v. University of Southern California (USC), No. 17-55550 (9th Cir. July 24, 2018) (published) (Thomas, Chief Judge, author; Friedland, Circuit Judge; and Zilly, W.D. Wash. District Judge by designation) confronted a situation where USC required current and former employees to sign standard employment contracts with arbitration clauses. However, the language only covered them in individual capacities such that the controversy here was whether these arbitration clauses covered employees bringing collective claims for breach of fiduciary duty against USC for the administration of certain ERISA plans. The district judge denied USC’s motion to compel arbitration after concluding that it did not encompass the ERISA plan challenges brought by the employees.

The Ninth Circuit agreed in a 3-0 panel opinion.

The summit issue under the Federal Arbitration Act (FAA) was whether the employment contract’s arbitration clause encompassed the dispute at issue. Employees won on that issue.

Earlier, in U.S. ex rel. Welsh v. My Left Foot Children’s Therapy, LLC, 871 F.3d 791 (9th Cir. 2017), decided under a similar employment contract that an arbitration clause did not cover qui tam claims brought by an employee on behalf of the U.S. government under the False Claims Act (FCA). The Ninth Circuit, in Munro, found that Welch’s reasoning did apply, because qui tam suits under the FCA—where a plaintiff sues for injury to the government—was akin to ERISA fiduciary breach suits—where a plaintiff sues for injury to the ERISA Plan. Beyond that, neither a plaintiff in an FCA suit nor a plaintiff in a similar ERISA suit can alone settle the suit. So, the USC arbitration clause was not broad enough to encompass “representative” claims of the nature alleged under ERISA.

However, not everything was lost from the defense perspective. In a footnote, the Ninth Circuit panel did hint quite strongly that its earlier holding in Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1987) might have been wrongly decided. Amaro found that ERISA 409(a) claims are inarbitrable, but the Ninth Circuit panel suggested this conclusion might have been wrong as a matter of law based on intervening binding authority—but did not have to reach the issue based on its narrower holding.

BLAWG OBSERVATION—I noticed that Eugene Scalia was on the losing side of the arbitration issue. Given his deceased father’s (former SCOTUS Justice Antonin Scalia's) views favoring arbitration and his pronouncements in Concepcion/other cases, his father might be rolling in his grave based on the result in this case, circumspect as it might be.

Legislation: Gov. Brown Approves Senate Bill 766, Expanding Opportunities For International Arbitrationtag:typepad.com,2003:post-6a016301acaf19970d022ad3a3752e200b2018-07-24T11:36:06-07:002018-07-24T16:28:10-07:00Members In Good Standing With Legal Profession In Foreign Country Will Be Able To Represent Client In California Arbitration. On July 18, 2018, Gov. Brown approved Senate Bill 766. The new law will allow members in good standing in the legal profession in a foreign country to represent their client...calmediation

Members In Good Standing With Legal Profession In Foreign Country Will Be Able To Represent Client In California Arbitration.

On July 18, 2018, Gov. Brown approved Senate Bill 766. The new law will allow members in good standing in the legal profession in a foreign country to represent their client in California arbitrations and mediations. This solves a problem created by California Business and Professions Code, Section 6125, which provides: "No person shall practice law in California unless the person is an active member of the State Bar." The text of SB 766 is available here. The new law should open up opportunities for conducting more international arbitrations in California.

Arbitration: Discovery, FAA: Contributor Marc Has Published A Recent Article On Suggested Legislative Fixes To Ninth Circuit’s Holding In CVS Health Corp. That District Judges Have No Power To Compel Third Party Document Production Before The Scheduletag:typepad.com,2003:post-6a016301acaf19970d022ad3a1ab57200b2018-07-17T15:31:18-07:002018-07-17T15:38:11-07:00His Article Appears in The July 2018 Edition Of The Orange County Lawyer. On December 25, 2017, contributor Marc posted on CVS Health Corp. v. Vividus, LLC, 878 F.3d 703 (9th Cir. 2017), where the Ninth Circuit Court of Appeals held, based on a reading of the "plain meaning" of...calmediation

His Article Appears in The July 2018 Edition Of The Orange County Lawyer.

Contributor Marc, in an article entitled “Arbitration and Third-Party Document Discovery Before a Hearing: A Problem In Search of a Solution” and published in the July 2018 edition of the Orange County Lawyer magazine, explores the ramification of CVS Health Corp. and proposes these possible legislative “fixes” to the issue (singularly, in combination, or in the aggregate) with respect to arbitrators allowing pre-hearing third-party document discovery:

The FAA could prohibit third-party document production before hearing outright in cases of a specified smaller monetary threshold;

The party seeking third-party documents prior to a hearing could be made to bear the costs;

The party seeking third-party documents prior to a hearing could be required to make the documents it receives available to other parties in the arbitration;

In considering whether to allow pre-hearing discovery of third-party documents, the arbitrator could consider the “proportionality” factors set forth in Federal Rule of Civil Procedure 26(b);

Third-party document discovery could be limited only to document production which would be deemed material evidence in the case; and

The district judges could remain available as a forum to address an unduly burdensome subpoena issued by arbitrators.

Arbitration: Construction Of Agreement; Employment; PAGA; Severability: 2/6 DCA Decides PAGA Waiver Is Unenforceable And PAGA Waiver Was Not Severable From Remainder Of Agreement Due To Differences Between English And Spanish Versions Signed By Employeetag:typepad.com,2003:post-6a016301acaf19970d022ad358f52f200c2018-07-05T22:37:34-07:002018-07-05T22:37:34-07:00Different Handbook Versions Seen As Negligent Or, At Worse, Deceptive. This case involved interesting PAGA waiver and severability issues under a very specific factual setting fraught with confusion. The situation went this way: Employer, during the employment of plaintiff hourly employee in Ventura, adopted a policy requiring arbitration of legal...calmediation

Different Handbook Versions Seen As Negligent Or, At Worse, Deceptive.

This case involved interesting PAGA waiver and severability issues under a very specific factual setting fraught with confusion.

The situation went this way: Employer, during the employment of plaintiff hourly employee in Ventura, adopted a policy requiring arbitration of legal claims arising from the employment relationship. Plaintiff employee had signed both an English and a Spanish version of employer’s dispute resolution agreement, although there was a major difference between the two. Both handbooks required arbitration of employment disputes and denied an employee’s right to bring an action under the California Private Attorneys General Act. The English version stated that the denial of the right to bring a PAGA action was severable if such denial was found unenforceable, while the Spanish version provided that the PAGA denial was not severable.

After the plaintiff filed wage/hour and PAGA claims, employer filed a motion to compel arbitration of plaintiff’s claims, relying on the handbook provisions. The trial judge denied the motion to compel, finding that (1) the differences in the two versions of the handbook were “propound” concerning a “very significant subject,” and (2) the arbitration agreement had to be construed against the drafter, namely, the employer.

Initially, the appellate court found that the trial judge properly concluded that the PAGA waiver found in the handbook was unenforceable as against public policy, based on Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348, 383-384 (2014). Beyond that, however, it was no abuse of discretion for the trial judge to decline to sever the PAGA waiver based on the differences between the English and Spanish versions. Finally, after finding that the difference in the severability clauses in the two versions was “negligent; at worse, it [was] deceptive,” the arbitration agreement ambiguity was construed against employer drafting party, with the appellate court concluding “[i]ndeed, Wash Depot may have left the meaning of severability ‘deliberately obscure, intending to decide at a later date what meaning to assert.’” (Slip Op., at p. 8.)

However, Wife’s Loss Of Consortium Claim Not Subject To Arbitration And Trial Court On Remand Had To Consider Third Litigation Exception As Basis To Deny Motion To Compel.

In Williams v. Atria Las Posas, Case No. B282513 (2d Dist., Div. 6 June 27, 2018) (published; Tangeman, J., author, concurred in by Gilbert, P.J. and Perren, J.), a trial court denied an elder/dependent adult residential care facility operator’s motion to compel arbitration under a separate arbitration agreement signed after a severely injured man also signed a Residency Agreement. (Wife did not sign.) The trial judge reasoned that the integration clause in the prior Residency Agreement barred proof of the subsequent arbitration agreement, not considering other issues raised by the parties.

The 2/6 DCA reversed, based on the timing of when agreements were signed. In this instance, the arbitration agreement was signed after the Residency Agreement, with the arbitration agreement expressly providing that it applied to claims regarding the validity or enforceability of the Residency Agreement. Under this sequence of events, the integration clause did not bar proof of the arbitration agreement.

However, that did not end the matter. The appellate panel did agree that arbitration was not available for wife’s loss of consortium claim because it was an independent claim and she did not sign the arbitration agreement. Next, operator’s argument that the FAA rules applied to the exclusion of CAA rules did not resonate given the wording of the arbitration clause which did not rule out the applicability of the CAA. Finally, with respect to whether the third party litigation exception in CCP § 1281.2(c) applies to justify the order denying the motion to compel arbitration, the trial judge needed to examine this issue on remand.

Mediation: Condition Precedent; Arbitration: Unconscionability: 4/3 DCA Reverses Denial Of Motion To Compel Arbitration Based On Employee’s Failure To Follow Dispute Resolution Hierarchy And Rejects Unconscionability Challengestag:typepad.com,2003:post-6a016301acaf19970d022ad37c91f6200d2018-06-27T16:27:48-07:002018-06-27T16:27:48-07:00Employee Was Required To Have Informal Meeting With Employer First, Formal Mediation Next, And Then Arbitration, With Employer Paying Costs Of ADR Remedies. Justice Bedsworth, in his distinctively colorful writing style, reversed a denial of a motion to compel arbitration in line with an ADR agreement between employee and employer...calmediation

Employee Was Required To Have Informal Meeting With Employer First, Formal Mediation Next, And Then Arbitration, With Employer Paying Costs Of ADR Remedies.

Justice Bedsworth, in his distinctively colorful writing style, reversed a denial of a motion to compel arbitration in line with an ADR agreement between employee and employer in Barati v. Ottno, Inc., Case No. G054960 (4th Dist., Div. 3 June 25, 2018) (unpublished; Bedsworth, J., author, concurred in by O’Leary, P.J. and Thompson, J.). In the process, he discussed a tailored ADR agreement and four unconscionability challenges advanced by employee on appeal.

The operative background was that employee and employer entered into a mediation and arbitration agreement which was pretty much a standalone and signed by employee—it was not just a handbook with an arbitration clause hidden in small print or at the back of the handbook. This agreement called for a three-tiered ADR process: first, all employment claims (including civil rights violations) had to be subject to an informal negotiation through a first meeting between employee and employer concerning a dispute; second, the case had to be referred to the nearest office of JAMS for a nonbinding conference before a retired judge or justice; and third, if those efforts were unsuccessful, an arbitration then could be requested by either party. The problem here was that employee balked at doing the first informal negotiation meeting and filed his own formal demand for arbitration with JAMS (complete with the filing fee, although griping that the employer should have paid it). Employer insisted on employee honoring the ADR scheme in the agreement, filing a motion to compel ADR compliance under the agreement. The trial judge denied the motion without explanation, triggering an appeal by employer resulting in a reversal.

The 4/3 DCA panel deciding the appeal decided there was no waiver of arbitration by employer not paying the JAMS mediation fees (“the elephant-in-the-room issue in the case”) because employee failed to follow the ADR process set forth in the agreement, more specifically, failure to engage in the initial informal negotiation session with employer.

The appellate court then discussed and rejected four unconscionability arguments.

First, the “take it or leave it” nature of the agreement was not unconscionable simply because the signing of it was a condition of employment. (Serafin v. Balco Properties Ltd., LLC, 235 Cal.App.4th 165, 179 (2015).)

Second, although it was true that the JAMS arbitration rules were not attached to the agreement and is a minor factor indicating procedural unconscionability, the failure to attach the rules—by itself—is not dispositive given employee failed to show that there was anything unfair about the JAMS rules. (Peng v. First Republic Bank, 219 Cal.App.4th 1462, 1472 (2013).)

Third, employee argued that the first informal negotiation session allowed employer an unfair “free peek” at his case. However, the 4/3 DCA panel found this unpersuasive because there was nothing in the ADR process requiring employee to reveal anything about his case and, in fact, employer was likely going to have to explain why employee was terminated—a reverse “free peek” favoring employee. The ADR structure under the agreement was unlike Nyulassy v. Lockheed Martin Corp., 120 Cal.App.4th 1267, 1282-1283 (2004), which required successive negotiations with higher-up supervisors (not the case here) and was unilateral (also not the case, because it was bilateral in nature). (See also Nguyen v. Applied Medical Resources Corp., 4 Cal.App.5th 232, 254-255 (2016).)

Fourth, employee argued that he had to pay for at least part of the mediation fees such that he was denied the benefit of filing with court and not bearing such expenses. Not so, said the appellate panel, because the agreement was silent on which side paid, meaning that the employer would bear the cost of both the mediation and arbitration. (Little v. Auto Stiegler, Inc., 29 Cal.4th 1064, 1082 (2003).)

So, this one got reversed with directions that the motion to compel be granted and ADR resolution proceed as described per the agreement between the parties. With respect to awarding appellate costs to any side just yet, the panel decided that the issue should be left to the discretion of the arbitrator depending on the eventual outcome of the arbitration (assuming that the first meeting or subsequent mediation did not resolve things).

Arbitration: Waiver: 3 ½ Years Of Litigation, Complete With Removals/Remands From Federal Court, Discovery, And Trial Continuances, Supported Trial Court’s Conclusion That Arbitration Was Waived On The Cusp Of Another Continued Trial Datetag:typepad.com,2003:post-6a016301acaf19970d022ad354d9e4200c2018-06-20T16:07:58-07:002018-06-20T16:07:58-07:00Prejudice Did Occur Plus Bad Faith Inference That Late Motion To Compel Arbitration Was Sought For Strategic Purposes. The Fourth District, Division Three has a rich body of case law on arbitration waiver as enunciated through a trio of cases: Burton v. Cruise, 190 Cal.App.4th 939 (2010); Adolph v. Coastal...calmediation

Prejudice Did Occur Plus Bad Faith Inference That Late Motion To Compel Arbitration Was Sought For Strategic Purposes.

In Masimo Corp. v. Welch, Case No. G054803 (4th Dist., Div. 3 June 18, 2018) (unpublished; Goethals, J., author, concurred in by Bedsworth, A.P.J. and Ikola, J.), the 4/3 DCA had to confront a trial court’s denial of a motion to compel arbitration in an unusual situation—an employee was seeking to arbitrate against a corporate employer filing a lawsuit for misappropriation of trade secrets. The problem was the late juncture in which employee attempted to invoke arbitration rights. The circumstances showed the following: (1) employee litigated employer’s claims for over 3 ½ years in superior court; (2) employee did not list entitlement to arbitration as an affirmative defense in his answer to the complaint; (3) employee actively participated in discovery at the superior court level; (4) employee obtained numerous continuances of scheduled trial dates; (5) employee sought to delay things further through the bankruptcy of his subsequent employer, removing to federal court and obtaining yet another trial continuance before the matter was remanded to state court; and (6) employee filed his petition to compel arbitration three weeks before the newly scheduled trial date, gaining yet another continuance. The trial judge denied the petition to compel arbitration based upon waiver, with employee appealing the denial (which introduced more delay because the appeal stayed further trial court proceedings).

The 4/3 DCA affirmed. It found that the substantial evidence review standard applied because of conflicting inferences from the evidence, with prejudice shown by depriving employer of the expedited benefits of an arbitration given how it was staked at the last moment on the cusp of another trial. Aside from facts showing litigation in a manner inconsistent with arbitration, the result was supported by the conclusion substantial evidence showed that employee’s invocation was strategic and done in bad faith—to obtain another delay of the trial and then appeal to introduce further delay. Lest someone think that an appeal alone will support bad faith, the appellate panel was careful to observe that this was confined to facts showing that it was strategically used in abusive fashion: “We do not mean to suggest that every attorney who appreciates the strategic significance of an immediate right to appeal would be acting in bad faith by pursuing that strategy.” (Slip Op., p. 16.)

BLAWG BONUS MILEAGE—Marc’s colleague Mike Hensley successfully defended an appeal of an order denying a motion to compel arbitration earlier in Eagle Iron Erectors, Inc. v. W&W Steel Co., Case No. G053406 (4th Dist., Div. 3 Aug. 25, 2017) (unpublished; Fybel, J., author, concurred in by Bedsworth, A.P.J. and Moore, J.). There, defendant brought a motion to compel 7 ½ months after the initial complaint was filed, although bringing two demurrers, engaging in discovery (with the plaintiff having to bring motions to compel which were granted along with sanctions), and bringing the motion so as to postpone a looming trial. It did rely on the trio of 4/3 DCA decisions when it came to affirming the waiver determination.